M/s. Rithwik Swathi Joint Venture, Hyd, Hyderabad V. DCIT, Cir-3(1), Hyderabad

ITA 797/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59358 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 02-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 797/HYD/2011 ASSESSMENT YEAR : 2007-08 M/S. RITHWIK SWATHI JOINT VENTURE, HYDERABAD PAN: AAAAR3284K VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE-3(1), HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI P. MURALI MOHAN RAO RESPONDENT BY: SHRI GSSS GOPINATH DATE OF HEARING: 14 .0 3 .2012 DATE OF PRONOUNCEMENT: 22.03.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-IV, HYDERABAD DATED 31.3.2011 FOR ASSESSMENT YEAR 2007-08. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS WITH REG ARD TO ALLOWABILITY OF BANK GUARANTEE COMMISSION. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE HAD CLAIMED DEBIT OF RS 58,61,347 TOWA RDS 'BANK GUARANTEE COMMISSION'. IT WAS STATED THAT THE PRIN CIPAL CONTRACTOR HAD ISSUED THE BANK GUARANTEES ON BEHALF OF THE APP ELLANT. HOWEVER, THE EXPENSES IN THIS REGARD WERE CHARGED T O THE ASSESSEE. THE ASSESSING OFFICER DID NOT FIND THE SAME ACCEPTA BLE AS HE FELT THAT THE ASSESSEE HAD ENTERED INTO THE SUB CONTRACT AFTE R THE CONTRACT BETWEEN THDC (TEHRI HYDRO DEVELOPMENT CORPORATION L TD) AND PROGRESSIVE CONSTRUCTIONS LTD. (PCL). HE NOTED THAT THIS WAS NOT AS PER THE TERMS AND CONDITIONS OF THE CONTRACT AGREEM ENT BETWEEN M/S. PROGRESSIVE CONSTRUCTION LTD. AND JV PARTNERS. HE A LSO NOTICED THAT 2 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ THE BALANCE SHEET OF THE ASSESSEE DID NOT REPRESENT ANY BANK LOANS/ DEPOSITS, SO AS TO MAKE THE ASSESSEE ELIGIBLE FOR S UCH CLAIM. HE FELT THAT THE ASSESSEE HAD NO OBLIGATION TO MEET SUCH EX PENDITURE AND THEREFORE, THE CLAIM OF EXPENDITURE WAS TO BE DISAL LOWED. HE FURTHER NOTED THAT AS PER THE LETTER DATED 2.12.2009, THE I NTEREST ON THE SAID FDS WAS BEING CLAIMED BY THE PARTNERS OF THE JVS IN THEIR INDIVIDUAL CAPACITY, WHILE THE EXPENDITURE WAS DEBITED TO THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRINCIPAL CONTRACTOR HAD ISSUED THE BANK GUARANTEES ON BEHALF OF THE ASSESSEE AND, THEREFORE, THE EXPENSES WERE BEING CH ARGED TO THE ASSESSEE. HE SUBMITTED THAT EVEN THOUGH THERE WAS N O MENTION IN THIS REGARD IN THE AGREEMENT, IT IS A NORMAL PRACTI CE THAT THE PRINCIPAL CONTRACTOR PROVIDES BANK GUARANTEE FOR TH E PERFORMANCE OF THE JOB. THE REPRESENTATIVE ARGUED THAT SINCE THIS WAS DONE IN THE COURSE OF BUSINESS, THE BANK GUARANTEE COMMISSION I S AN ALLOWABLE BUSINESS EXPENDITURE. HE FURTHER DREW OUR ATTENTIO N TO A COPY OF LETTER DATED 10.4.2007 FROM M/S. PCL ADDRESSED TO T HE ASSESSEE, INFORMING THEM REGARDING THE DEBIT OF RS. 59,33,250 BEING BANK GUARANTEE CHARGES, TOWARDS BANK GUARANTEES ISSUED F OR OBTAINING MOBILISATION ADVANCE, MACHINERY ADVANCE AND PERFORM ANCE GUARANTEE IN FAVOUR OF M/S. THDC. IT WAS FURTHER M ENTIONED THEREIN THAT THEY HAD AWARDED THE SAID WORK ON 100% BACK TO BACK BASIS TO THE ASSESSEE JV AND, THEREFORE, THE BANK GUARANTEE CHARGES INCURRED HAD BEEN DEBITED TO THEM AND RECOVERED FROM THEIR R A BILL AMOUNT. HE ALSO DREW OUR ATTENTION TO CALCULATIONS IN RESPE CT OF BANK GUARANTEE CLAIMS AND OTHER RELATED CORRESPONDENCE B ETWEEN THE ASSESSEE JV AND PCL AND M/S. RITHWIK PROJECTS LTD., DATED 31.3.2007. 5. THE DR SUBMITTED THAT THE ASSESSING OFFICER BY WAY OF HIS REPORT DATED 21.3.2011 HAS SUBMITTED THAT AS PER 3 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ COLUMN NO. 9 OF THE MEMORANDUM OF UNDERSTANDING DAT ED 6.9.2002 'THE PARTIES TO THE AOP AT THE REQUEST OF M/S. PROGRESSIVE CONSTRUCTION LTD. HAD ADVANCED SUMS FOR PROVIDING BANK GUARANTEES AND THE RESPECTIVE CONTRI BUTIONS SHALL BE TREATED AS CAPITAL OF THE AOP AND THE PARTIE S HERETO WILL NOT HAVE ANY INDEPENDENT CLAIM THERETO.' THE ASSESSING OFFICER SUBMITTED THAT THE ABOVE SHOWED THAT THE ME MBERS OF THE AOP HAD ADVANCED BANK GUARANTEE MARGIN MONEY TO THE PRINCIPLE CONTRACTOR, I.E. PCL, FOR PROVIDIN G BANK GUARANTEES. HE REITERATED THAT THE INTEREST ON FIXE D DEPOSITS, I.E. MARGIN MONEY PROVIDED BY THE MEMBER OF THE AOP, HAD NOT BEEN OFFERED TO TAX BY THE JOINT VENTU RE AOP. THE ASSESSING OFFICER SUBMITTED THAT SINCE THE INTE REST INCOME WAS NOT OFFERED TO TAX BY THE AOP, THE EXPEN DITURE INCURRED TOWARDS BANK GUARANTEE COMMISSION IS ALSO NOT ALLOWABLE. ACCORDINGLY, IT WAS SUBMITTED THAT EVEN AFTER VERIFICATION OF THE ADDITIONAL INFORMATION SUBMITTE D DURING THE REMAND PROCEEDINGS, THE ADDITION IS IN ORDER. T HE ASSESSING OFFICER FURTHER ARGUED THAT THOUGH THE AS SESSEE HAD BEEN GIVEN SUFFICIENT OPPORTUNITIES DURING THE ASSESSMENT PROCEEDINGS FOR FURNISHING THE RELEVANT DOCUMENT IN SUPPORT OF ITS CLAIM, NOTHING PREVENTED IT FROM SUBMITTING SUCH INFORMATION AT THIS STAGE. HE AVERRED THAT THE COPY OF THE MOU DATED 6.9.2002 SHO ULD HAVE BEEN SUBMITTED DURING THE ASSESSMENT PROCEEDIN GS ITSELF AND THERE IS NO VALID REASON FOR NOT SUBMITT ING THE SAME BEFORE THE ASSESSING OFFICER. 6. THE LEARNED DR SUBMITTED THAT FROM THE AGREEMENT BETWEEN M/S. PCL AND THE ASSESSEE, RSJV, DATED 21.12.2002, IT IS SEEN THAT M/S. RITHWIK PROJECTS L TD. AND 4 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ M/S. SWATHI CONSTRUCTION HAVE ENTERED INTO A MOU DA TED 6.9.2002 FOR THE PURPOSE OF EXECUTING THE WORK COVE RED UNDER THE ORIGINAL AGREEMENT DATED 14.11.2002 BETWE EN M/S. PCL AND THDC. BY WAY OF THE AGREEMENT DATED 21.12.2002, PCL HAD AGREED TO TAKE THE SERVICES OF RS JV AND RS JV WAS TO EXECUTE AND COMPLETE THE WORK ON B ACK TO BACK BASIS, AS PER THE AGREED RATE AND IN ACCORD ANCE WITH THE SCOPE AND SPECIFICATIONS PRESCRIBED AND AL L OTHER TERMS AND CONDITIONS STATED IN THE ORIGINAL AGREEME NT, BESIDES THE INSTRUCTIONS ISSUED BY THE EMPLOYER FRO M TIME TO TIME. FURTHER, AS PER THE STIPULATION REGARDING 'NATURE OF WORKS AND CONSIDERATION', AS ALSO 'CLAIMS' IN THE AGREEMENT, THE CLAIMS RECEIVED FROM THE EMPLOYER WE RE TO GO TO THE CREDIT OF RSJV, AFTER DULY DEDUCTING 5% F ROM THE NET AMOUNT RECEIVED, BESIDES THE TDS OF 2.04%. ACCORDINGLY, THE ASSESSEE WAS TO GET WAS TO EXECUTE THE WORK AT 92.96% OF THE RATES APPROVED BY THE EMPLOYE R. AT THE SAME TIME, RSJV WAS TO ENSURE THAT IT WOULD FUL FIL ALL ITS OBLIGATIONS UNDER THE SAID AGREEMENTS, AS ALSO THE ORIGINAL AGREEMENTS. 7. THE DR FURTHER SUBMITTED THAT AS PER ITEM NO. 4, RSJV HAD AGREED TO PAY MARGIN MONEY/DEPOSIT TO M/S. PROGRESSIVE, WHICH PCL USED FOR FURNISHING THE 'PERFORMANCE BANK GUARANTEE', 'ADVANCE BANK GUARANT EE' ETC. TO THE EMPLOYER AS PER THE ORIGINAL AGREEMENT. IN TERMS OF COLUMN NO. 9 OF MOU DATED 6.09.2002, HOWEVER, TH E RESPECTIVE CONTRIBUTIONS MADE TO M/S. PCL BY THE PA RTIES TO THE AOP FOR THIS PURPOSE WERE TO BE TREATED AS T HE CAPITAL OF AOP AND THE PARTIES THERETO WERE NOT TO HAVE ANY INDEPENDENT CLAIMS THERETO. 5 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ 8. THE LEARNED DR SUBMITTED THAT FROM THE ABOVE, IT IS CLEAR THAT IT CANNOT BE DISPUTED THAT THE WORK HAD BEEN SUBCONTRACTED ON 100% BACK TO BACK BASIS TO THE APP ELLANT. AT THE SAME TIME, HOWEVER, THE BANK GUARANTEES HAD BEEN AGREED TO BE PROVIDED TO THDC BY THE PRINCIPAL CONT RACTOR ITSELF, EVEN BEFORE THE WORKS WERE SUB CONTRACTED T O THE ASSESSEE JV. EVEN THOUGH THE FUNDS FOR SUCH GUARANTE E WERE PROVIDED BY THE CONSTITUENTS OF THE JV ITSELF, THE SAME WAS TO BE TREATED AS CAPITAL OF THE ASSESSEE JV. FURTHER, IT IS SEEN THAT THOUGH IT HAD BEEN SPECIFIED THAT THE PARTIES TO THE AOP WOULD HAVE NO INDEPENDENT CLAIM OVER THE SUMS ADVANC ED FOR BANK GUARANTEE, NONE OF THE AGREEMENTS EVER MEN TIONED THAT THE ASSESSEE JV WAS TO BE UNDER ANY OBLIGATION TO BEAR THE EXPENSES TOWARDS BANK GUARANTEE COMMISSION. IT CANNOT BE SAID THAT WHILE DECIDING THE PORTION OF THE PAYM ENTS TO BE RETAINED BY THE PRINCIPAL CONTRACTOR, THE ELEMENT O F EXPENSES TOWARDS COMMISSION ON BANK GUARANTEES WAS NOT CONSI DERED BY THEM AS COVERED. THE DR SUBMITTED THAT EVEN THOU GH THE ENTIRE ARRANGEMENT BETWEEN THE PRINCIPAL CONTRACTOR AND THE JV, AS ALSO IT CONSTITUENTS, WAS MADE BY WAY OF SPE CIFIC AGREEMENTS, NONE OF THOSE SHOW THAT THE ASSESSEE WA S UNDER ANY OBLIGATION TO BEAR THE EXPENSES TOWARDS COMMISS ION ON BANK GUARANTEE. THE DISALLOWANCE OF CLAIM ON THIS A CCOUNT OF RS. 58,61,347 IS JUSTIFIED. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE CLAIM OF THE ASSESSEE IS THAT THE BANK GUARANTEE HAS BEEN GIVEN ON BEHALF OF THE ASSESSEE BY ITS PRINCIP AL M/S. PCL IN FAVOUR OF M/S. THDC. ON THIS M/S. PCL INCURRED BAN K GUARANTEE COMMISSION AT RS. 58,61,341 AND THE SAME WAS REIMBU RSED BY THE ASSESSEE TO M/S. PCL AS THE BANK GUARANTEE IS GIVEN ON BEHALF OF THE ASSESSEE IN FAVOUR OF M/S. THDC. ACCORDING TO THE ASSESSEE THIS IS A 6 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ BUSINESS EXPENDITURE. IN OUR OPINION, IF THE BANK GUARANTEE HAS BEEN GIVEN TO M/S. THDC BY M/S. PCL ON BEHALF OF TH E ASSESSEE THEN THE BANK GUARANTEE COMMISSION HAS TO BE TREATED AS BUSINESS EXPENDITURE IN VIEW OF THE JUDGEMENT OF JURISDICTIO NAL HIGH COURT IN THE CASE OF ACIT VS. AKKAMBA TEXTILES LTD. (117 ITR 294) WHEREIN IT WAS HELD AS UNDER: 'THE QUESTION WHETHER A PARTICULAR EXPENDITURE IS R EVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUSINES S MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSI TY OR EXPEDIENCY. IF THE OUTGOING EXPENDITURE IS SO RELAT ED TO THE CARRYING ON OR THE CONDUCT OF BUSINESS, THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT-EARNING PROCESS AND NOT FOR ACQUISITION OF AN ASSET OR A RIGHT OF A PERMANENT CHARACTER, THE POSSESSION OF WHICH IS A CONDITION TO THE CARRYING ON OF BUSINESS, THE EXPEN DITURE MAY BE REGARDED AS REVENUE EXPENDITURE. THE TRANSACTION OF ACQUISITION OF ASSETS CAN BE SAI D TO BE CLOSELY RELATED TO THE COMMENCEMENT AND CARRYING ON OF BUSINESS BY AN ASSESSEE. HENCE, ANY EXPENDITURE INCURRED BY THE ASSESSEE, WHICH IS A RUNNING CONCER N, FOR ENSURING USE OF MONEY FOR A CERTAIN PERIOD OR ENABL ING THE ASSESSEE TO MAKE DEFERRED PAYMENT OF COST OF ASSETS ACQUIRED, CONSTITUTES REVENUE EXPENDITURE AND, THER EFORE, THE SAME IS ADMISSIBLE AS DEDUCTION FROM REVENUE IN COME. THEREFORE, THE COMMISSION PAID BY THE ASSESSEE TO T HE GUARANTOR FOR ENABLING IT (THE ASSESSEE) TO MAKE DE FERRED PAYMENT OF THE PURCHASE CONSIDERATION, CONSTITUTES REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE AND , THEREFORE, IS ADMISSIBLE AS DEDUCTION FROM THE INCO ME.' 10. FURNISHING OF BANK GUARANTEE ON BEHALF OF THE ASSES SEE BY M/S. PCL HAS TO BE VERIFIED AND DECIDED ACCORDINGLY . ACCORDINGLY, THE ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 11. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF I NTEREST EXPENDITURE ON SECURED LOANS AT RS. 11,68,589. BRI EF FACTS OF THE ISSUE ARE THAT WITH REGARD TO INTEREST EXPENDITURE OF RS. 11,65,589 IS CONCERNED, THE ASSESSING OFFICER NOTED THAT AS 7 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ PER THE LEDGER PRODUCED BY THE ASSESSEE IN RESPECT OF 'INTEREST ON BATCHING AND MIXING PLANT' THE SAID IN TEREST HAD ONLY 'ACCRUED' AND 'WAS NOT DUE', AS THE DEBIT WAS SHOWN AS 'BEING THE INTEREST PROVISION MADE UP TO 31.3.2006 RS. 11,68,589/-'. THE ASSESSING OFFICER OPINED THAT THER E WAS NO EVIDENCE TO THE EFFECT THAT THE ASSESSEE HAD PAID A NY TAX OR MADE TDS THEREON. SINCE THE SAID AMOUNT WAS ONLY A PROVISION, THE CLAIM OF THE EXPENDITURE OF RS. 11,6 8,589 WAS DISALLOWED. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNA L IN ASSESSEES OWN CASE FOR A.Y. 2006-07 IN I.T.A. NO. 719/HYD/201 0 WHEREIN THE TRIBUNAL GIVEN THE FINDINGS IN FAVOUR OF THE ASSESS EE AND THE ISSUE HAS TO BE DECIDED IN ASSESSEE'S FAVOUR. THE FINDIN GS OF THE TRIBUNAL ARE AS FOLLOWS: '9. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED THE MATERIAL ON RECORD. IT IS AN ADMITTED FACT THAT TH DC IS A JOINT VENTURE OF GOVERNMENT OF INDIA AND GOVERNMENT OF UP. THE THDC ITSELF DEDUCTED THE INTEREST AND OTHE R RECOVERIES OUT OF THE RA BILL AND PAID THE BALANCE AMOUNT TO THE ASSESSEE. THIS FACT HAS BEEN ADMITTED BY TH E THDC VIDE THEIR LETTER DATED 14.12.2007 WHICH READS AS FOLLOWS: 'TEHRI HYDRO DEVELOPMENT CORPORATION (A JOINT VENTURE OF GOVT. OF INDIA & GOVT. OF U.P.) KOTESHWAR HYDRO ELECTRIC PROJECT KOTESHWAR, TEHRI GARHWAL (UTTARANCHAL) PIN: 249 001 NO. 719/CPO/D&PH/THDC/KHEP/DL/ DT. 14/15/12/2007 TO WHOM SO EVER IT MAY CONCERN IT IS CERTIFIED THAT WE (M/S. THDC LTD.) ARE DEBIT ING THE ACCOUNT OF M/S. RITHWIK SWATHI JOINT VENTURE REGULARLY AT THE END OF EVERY F.Y. AGAINST INTEREST ON 8 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ MOBILISATION ADVANCE TAKEN BY THEM AND RECOVERING T HE SAME BY WAY OF DEDUCTION FROM WORKS BILLS COMMENCIN G FROM F.Y. 2002-03. FURTHER, SINCE THDC IS A PUBLIC SECTOR UNDERTAKING (A COMPANY IN WHICH ALL THE SHARES HELD BY GOVERNMENT OF INDIA & GOVERNMENT OF U.P.), SO NO TA X ON INTEREST IS DEDUCTIBLE AS PER CIRCULAR/NOTIFICATION . DUE TO THE ABOVE MATTER, WE ARE DEDUCTING FULL INTEREST FROM GROSS AND ESCALATION BILLS OF M/S. RI THWIK SWATHI JOINT VENTURE, HYDERABAD. SD/- (D.V. SINGH) CHIEF PROJECT OFFICER DAM & POWER HOUSE KHEP, KOTESHWAR' 10. HENCE NO PAYMENT HAS GONE OUT OF THE ASSESSEE COMPANY AND THDC ITSELF DEDUCTED THE AMOUNT TOWARDS THE INTEREST. IT IS BEING A JOINT VENTURE OF GOVER NMENT OF INDIA AND GOVERNMENT OF U.P., IN OUR OPINION, THERE IS NO QUESTION OF DEDUCTING THE TDS ON THE IMPUGNED INTER EST AMOUNT. IT IS ALSO A FACT THAT THDC FALLS UNDER TH E PURVIEW OF SECTION 194A(3)(III)(F) OF THE INCOME-TA X ACT, 1961 AND AS SUCH IT IS NOT LIABLE FOR DEDUCTING TDS . IN OUR OPINION, THE CIT(A) HAS TAKEN A CORRECT VIEW ON THE DEDUCTION OF TDS. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS CONFIRMED.' 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THE YEAR UNDER CONSIDERATION THE FACTS AND CIRCUMSTANCES ARE SIMILAR AS THAT OF THE ABOVE ASSESSMENT YEAR. THEREFORE, WE ARE INCLINED TO TAKE THE SAME VIEW AS ABOVE. ACCORDING LY THIS GROUND OF THE ASSESSEE IS ALLOWED. 14. THE THIRD GROUND IS WITH REGARD TO AD-HOC DISALLOWA NCE OF RS. 15 LAKHS. 15. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSING OFF ICER OBSERVED THAT THOUGH THE ASSESSEE HAD BEEN REQUIRED TO FURNI SH THE VOUCHERS 9 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ IN SUPPORT OF THE EXPENSES, IT WAS FOUND THAT SOME OF THEM WERE NOT PROPERLY/FULLY VOUCHED. CONSIDERING THE NATURE OF BUSINESS AND THE FACTS OF THE CASE, HE DISALLOWED AN AMOUNT OF RS. 1 5 LAKHS OUT OF THE TOTAL EXPENDITURE. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE DISALLOWANCE IS MADE ON AD-HOC BASIS A S THE EXPENDITURE IS NOT PROPERLY SUPPORTED BY VOUCHERS. CONSIDERING THE NATURE OF DISCREPANCY NOTICED BY THE ASSESSING OFFI CER, WE ARE OF THE OPINION THAT AD-HOC DISALLOWANCE AT RS. 15 LAKHS IS ON HIGHER SIDE AND, IN OUR OPINION, TO MEET THE ENDS OF JUSTICE, D ISALLOWANCE OF 5% OF THE EXPENDITURE WILL BE PROPER. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO DISALLOW ONLY 5% OF THE CASH E XPENSES UNVOUCHED BY PROPER BILLS AND RECEIPTS IF IT IS NOT A STATUTORY PAYMENT SINCE THERE ARE CHANCES OF INFLATING THE CA SH EXPENSES. THIS GROUND IS PARTLY ALLOWED. 17. THE LAST GROUND IS WITH REGARD TO DISALLOWANCE OF L EGAL CHARGES AT RS. 4,04,000 ON ACCOUNT OF NON TDS. BRIEF FACTS OF THE ISSUE ARE THAT W ITH REGARD TO THE DISALLOWANCE OF LEGAL CHARGES, THE ASSESSING OFFICER NOTED THAT THE APPELLANT HAD DEBITE D A TOTAL AMOUNT OF RS. 4,04,000 IN RESPECT OF ONE SRI KUL JEET SINGH, WITH A NARRATION 'BEING EXPENDITURE AND CONSU LTING PER DAY', 'BEING X DAYS CONSULTING AND TAXI HIRED' ETC., IN THE LEDGER ACCOUNT FOR 'LEGAL AND PROFESSIONAL EXPENS ES'. HE NOTED THAT THE ASSESSEE HAD NOT EFFECTED TDS IN RESPECT OF THE SAID PAYMENTS. INVOKING THE PROVISIONS OF SEC. 40 (A)(IA) THE EXPENDITURE OF RS. 4,04,000/- WA S DISALLOWED. 18. BEFORE US THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT EACH PAYMENT IS LESS THAN RS. 20,000 ON VARIOU S 10 ITA NO. 797/HYD/2011 M/S. RITHWIK SWATHI JOINT VENTURE ============================ DATES AND PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE FACT THAT WHETHER THE PAYME NTS ARE LESS THAN RS. 20,000 IS REQUIRED TO BE EXAMINED BY THE ASSESSING OFFICER. HENCE WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING WHETHER EACH PAYMENT MADE BY THE ASSESSEE IS LESS THAN RS. 20,00 0 OR NOT AND DECIDE ACCORDINGLY. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MARCH, 2012. SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 22 ND MARCH, 2012 COPY FORWARDED TO: 1. M/S. RITHWIK SWATHI JOINT VENTURE, C/O. M/S. P. MUR ALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD-82. 2. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 3(1), HYDERABAD. 3. THE CIT(A) - I V, HYDERABAD. 4. THE CIT - III , HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD TPRAO